In one of the most significant speeches since taking the top job at the Bank of Canada, Governor Stephen Poloz says Canada’s economy is moving towards more “normalized” conditions. Nobody will dispute that the last five years have been anything but standard when it comes to economy, but saying there’s “improving confidence” in Canada while so many global economic crisis remain seems idealistic.
Pressing Economic Questions
Talking to a group at the Vancouver Board of Trade, Poloz answered three questions he said are on the minds of Canadians.
- How the country will return to natural economic growth?
- What the economy will look like once it’s there?
- What indicators will signal that the economy is on the right path?
“I anticipate that the Canadian economy will normalize and growth will become natural, in contrast to the economic activity of the past six years, which has been fueled by policy, including record-low interest rates,” he explained. “Natural growth will be self-generating and self-sustaining, and the economy will be growing at its potential, as its productive capacity expands.”
What Is Natural Growth?
In a normalized economy, Poloz wants to see inflation at around two per cent. He also wants confidence that the economy can support more growth without ultra low interest rates to fuel it. Poloz is hoping investment will become increasingly solid as companies become more confident. He adds stronger investments are what will lead to job growth. “The message here is that the economy should be able to support stronger activity without stoking inflation as investment ticks upward. Such an endogenous response of potential to stronger demand would be natural, given the slack that we see in our labour market,” he said.
Global Issues Continue
Poloz is making his comments despite the fact that the European debt situation is still in focus and the threat of war in Syria remains. But what’s most concerning is the U.S. Federal reserve has just announced it’s staying the course with its economic stimulus, as its economy still requires help to keep moving. This week Federal Reserve Chairman Ben Bernanke says, “The committee decided to wait for more evidence that the recovery’s pace will be sustained.” The U.S. is our biggest trading partner and news that growth is once again stalled will have implications for Canada.
Poloz’s Idealism Is Showing
As comforting as its is, Poloz’s confidence seem a little premature. Canada’s unemployment rate is still 7.1 per cent. There’s also growing evidence many Canadian have stopped looking for a job and are no longer being counted as participating in the labour market. Skilled manufacturing jobs have snot returned to the economy, leaving many high skilled workers with little options of where they can work. Since Carney left, there has been no evidence of what king of governor Poloz is going to be. Up until now he has stayed the course that Carney laid out when it comes to interest rate announcement and economic updates. But these new comments show Poloz may be more idealistic than his predecessor and see Canada’s economy as improving better than most of us are experiencing.